In our final article (in our estate planning series), we will talk about estate planning when you have a family business that you operate out of a corporation (Opco) and is possibly owned by a holding company (Holdco).  How do you effectively estate plan in this type of scenario? At McCay Duff, we can assist you in this regard.

The biggest decision when you own your own business is “who” to pass it to? If your intention is to pass it along to a family member, one must ensure that they understand the business fully and are willing to assume the helm. There are recent amendments to the Tax Act that may help in this situation that may allow you to access the lifetime capital gains exemption of approximately $892,000 tax-free.  For more information see our article about Bill C-208 and its amendments.

If you have no family member who wants to inherit the business, you may consider selling your business to an unrelated third party. When you do this, there are two possible ways to value your business. Sometimes, there is value to selling a business as a going concern by selling the corporation’s shares. This would apply when the purchaser wants to continue the business. Alternatively, there may be value to only selling the corporation’s assets, or even simply winding up the corporation. In these latter cases, the shares are not sold – but can be used to distribute profits to the shareholders.

When you are one of the multiple shareholders, the most important estate planning tool will be a shareholder agreement. Restrictions on who can become a shareholder are especially important in smaller family-owned businesses.  A well-written agreement will provide for different exit strategies in the event the shareholders no longer wish to be in business together and will also stipulate what happens on the death of a shareholder. Upon the death of a shareholder, the deceased’s shares become part of their estate and are subject to the testamentary wishes of the deceased. In other words, in the absence of a shareholders’ agreement that addresses what will happen to a shareholder’s shares upon death, the spouse or children of the deceased could overnight become your new business partner – a scenario which may not be desirable to the remaining shareholders. A compulsory buy-out provision can be included in the shareholders’ agreement which provides that if a shareholder dies, the remaining shareholders, or the business, will be forced to buy the deceased’s shares, and the executor or administrator of the estate would be required to sell the shares.

When you die owning shares of a privately held corporation, there is a “deemed disposition” of those shares and they will be valued and dealt with as part of your estate. This may create a significant tax bill for your estate and consideration as to what liquid assets are available to satisfy this obligation will need to be determined.

Your Will is an important tool to direct your Executor as to how your business interests will be dealt with after your death. Further, if you are an owner of a privately held corporation, you may want to consider having multiple Wills.

 A “personal will” will facilitate the administration of your personal assets, such as the family home and /or cottage, investments, and registered accounts while a “corporate will” will deal with your shares in a private corporation, shareholder loans and/or receivables.

If you own shares in a private corporation and don’t have a corporate will, it can be very costly for your beneficiaries. For example, if you die with only one Will owning shares in your corporation valued at $2,000,000 at your death, $29,250 will have to be paid as probate fees. Thus, by having multiple Wills, your estate can save $29,250 which would otherwise be payable on the value of your shares. Another important item to consider

All the above options carry significant tax and valuation implications for your estate and consequently for your beneficiaries. We have a McCay Duff Valuations Team that can help you with ever what option best suits your needs.

Your trusted tax advisors at McCay Duff would love to discuss your estate planning needs if the time for you is NOW! The tax team, headed by Greg Kauffeldt, has over 50+ combined years of providing clients excellent estate planning advice and strategies.

Contact McCay Duff LLP in Ottawa for Experienced Estate Planning Advice

McCay Duff LLP, in collaboration with legal and financial planning professionals, can effectively assist you with your estate, financial and succession planning needs. Early and effective planning assists in minimizing taxes and ensuring all compliance requirements are met.

Contact your team at McCay Duff LLP today to enjoy the benefits of having estate, financial and succession planning specialists on your side at 613-236-2367.